Transport projects will need time

06 April 2017

Value of contract awards dropped by 20 per cent in 2016

Between 2013 and 2016, the value of contract  awards in the Middle East & North Africa (Mena) transport sector, which includes rail, ports, airports and roads, averaged $44bn a year, according to MEED Projects data.

This suggests that roughly $10.5bn-worth of projects should have been awarded in the first quarter of 2017. However, a mere $5.3bn of contracts were awarded between January and March this year.

If this trend persists throughout the year, then 2017 is likely to be as weak as the previous year, if not weaker. At $33.2bn, transport contract awards in 2016 have already dropped 20 per cent compared to the previous year.

Mena transport contract awards ($m)
YearAirportsPortsRoadsRailway
20131,6223,05721,30632,166
20143,39266728,77813,630
20151,43376928,58110.456
20166,2335,74714,5286,678
2017*1,4103573,47290
* First quarter contract awards; Source: MEED Projects

Roads accounted for more than half of the total contracts awarded between 2013 and 2016. The expected slowdown in contract awards particularly for rail projects means the share of roads of the total awards could expand this year, although perhaps not for longer since the majority of packages for the multibillion-dollar road schemes particularly in Qatar, Saudi Arabia and the UAE have already been awarded.

Individual country’s long-term economic diversification plans, which underscore logistics as a major non-oil sector that needs to be developed, have driven major investments in the transport sector in recent years.

The planned industrial or economic cities in underdeveloped regions like Jizan in Saudi Arabia and Al-Wusta in Oman and the need to decentralise urban development in countries like Kuwait have required the construction and expansion of ports, airports, railway and roads.

However, the drying up of state funding sources due to lower oil prices has delayed some of these projects or placed them on hold, with clients particularly for rail and airports indicating a plan to tap public-private partnerships (PPP) to deliver them.

The lack of PPP laws to organise an entire ecosystem consisting operators, developers and financing companies around long-term contracts, and the longer and more complex negotiations required in PPP transactions, means the award of new contracts particularly within the rail sector in Saudi Arabia, the largest potential market, will now take longer than expected. Selected bidders for the Mecca Metro contracts, for instance, have been waiting for an award since late 2015.

Overall, an estimated $30bn-worth of rail projects across Middle East and North Africa (Mena) are expected to be awarded this year, the largest of which are Saudi Arabia’s Mecca Metro, its part of the GCC Railway, and Qatar’s long distance rail.

The recent expansion announcements for the Green lines of both the Dubai and Doha metro schemes, and the political will behind the light rail project in Bahrain are expected to boost the region’s rail sector.

The completion of the first phases of the metro systems in Doha and Riyadh by 2019 or 2020, with both schemes incorporating an efficient bus network system, which the Dubai Metro lacked when it opened in 2009, will also provide additional reference points for clients in terms of these projects’ economic, social and environmental benefits. However, until then, it is expected that a general wait-and-see stance will likely persist within the sector.

The release of tenders for more than AED10bn ($2.7bn) worth of packages for the planned $33bn expansion of Dubai’s Al-Maktoum International airport this year, and the potential fast-tracking of airport PPP awards in Saudi Arabia also mean there will likely be more activities this year and over the medium-term in the region’s airport sector.

The ports sector had one of the best years in terms of contract awards in 2016, primarily due to the major projects now underway in Algeria and Morocco, although comparatively it has the lowest pipeline in 2017, compared to airports, roads and rail.

The transport sector in general will need time to reprioritise projects while clients undertake major restructuring processes. However, this also means the sector needs to deal with mounting frustration on the part of most contractors, which over the years have become accustomed to relatively straightforward and short award timeline even for the region’s largest transport and infrastructure projects. 

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